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Reformation of Legal Description after Expiration of the Statutory Redemption Period?

Posted By USFN, Thursday, June 30, 2016

May 12, 2015

by Scott W. Neal
Orlans Associates, P.C. – USFN Member (Michigan)

Recently, the Michigan Court of Appeals ruled against the plaintiff bank regarding a foreclosed property in which the mortgage had been assigned to the plaintiff. [OneWest Bank v. Jaunese, Case No. 320037 (Mar. 19, 2015)].

Some background: After foreclosure and expiration of the statutory redemption period, a previous holder of the mortgage, Financial Freedom Acquisition, LLC (FFA), discovered an error in the mortgage’s legal description. The description only covered 2.5 acres of property — instead of 106 acres, which had been the intent of the original mortgagee. More than a year after the redemption period had expired, FFA executed an affidavit of scrivener’s error to correct the legal description. FFA also executed an affidavit to expunge the sheriff’s deed about six months later, acknowledging the sheriff’s sale but stating that FFA would “not rely on said foreclosure sale” and “wishes this affidavit to … correct record title and to show that the Sheriff’s Deed on Mortgage Sale … is of no force or effect.” FFA then assigned the now-defunct mortgage to OneWest Bank, referencing the affidavit with the correct legal description.

More than a year since the assignment, and nearly three years after the sheriff’s sale had occurred, OneWest filed a complaint for reformation of the mortgage and to quiet title to the property. The plaintiff alleged that the mortgage contained an incomplete legal description due to mutual mistake.

The Court of Appeals, relying on Bryan v. JP Morgan Chase Bank, 304 Mich. App. 708; 848 N.W.2d 482 (2014), stated that once the redemption period has expired, absent fraud or irregularity, all of the plaintiff’s rights in, and title to, the property have been extinguished by the foreclosure. In order to maintain such rights, the plaintiff or its predecessor-in-interest would have needed to challenge the foreclosure and/or execute the affidavit of scrivener’s error and affidavit to expunge the sheriff’s deed prior to expiration of the redemption period. Once the redemption period expires, neither the mortgagor nor mortgagee can challenge the validity of the sale.

Practice Tip: This case illustrates why it is incredibly important to ensure clean title prior to foreclosing on a mortgage.

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